What Is the Purpose of Setting a “Maximum Slippage Tolerance” on a DEX Trade?
Maximum slippage tolerance is a parameter set by the trader that dictates the maximum percentage difference they are willing to accept between the quoted price and the final execution price. If the actual slippage exceeds this tolerance, the trade will automatically fail.
This protects the trader from excessive price impact in volatile or low-liquidity conditions, ensuring they do not get an unreasonably poor execution price. It is a crucial risk management tool.
Glossar
Slippage Tolerance
Mechanism ⎊ Slippage tolerance, within cryptocurrency, options, and derivatives trading, defines the maximum acceptable difference between the expected price of a trade and the price at which the trade is actually executed.
Maximum Slippage
Variance ⎊ Maximum slippage, within cryptocurrency, options, and derivatives, represents the difference between the expected trade price and the actual execution price, stemming from order size relative to available liquidity.
High Slippage Tolerance
Tolerance ⎊ High slippage tolerance, within cryptocurrency and derivatives markets, signifies an investor’s or trading system’s capacity to accept price discrepancies between order execution and the anticipated price.
Low Slippage Tolerance Setting
Parameter ⎊ Low Slippage Tolerance Setting is a configurable parameter within a trading interface or algorithmic execution logic that dictates the maximum acceptable difference between the expected price of a trade and its actual execution price.